INTELLIGENT WAVE INC.

With the spread of electronic money and the mainstreaming of mobile payments, new entrants from other industries have increased, intensifying the competitive environment. In addition, consolidation and restructuring of the credit card industry, centered on megabanks, is progressing, and there is a possibility that a decrease in the number of customers due to consolidation of major clients and a decrease in orders for system development projects may affect net sales. On the other hand, the enlargement of systems resulting from customer consolidation may lead to an expansion in the scale of orders per project.

There is a risk that profitability may be impaired in long-term development projects due to changes in requirements, increased man-hours, and delivery delays. Frequent rework and corrections resulting from unclear specifications at the initial stage may lead to quality deterioration, schedule delays, and worsening profitability, and if quality issues become apparent, additional costs and damages may arise, potentially affecting business performance and credibility. As a countermeasure, the Company has established continuous monitoring by the quality control department, the introduction of phased contract structures, and a reporting system to the Risk Management Committee.

Competition to acquire IT talent is intensifying due to the decline in the working population caused by the declining birthrate and aging population, as well as the progress of DX, and if the Company is unable to secure the necessary talent, this may affect business execution and the maintenance of sustainable growth capability. Deterioration of the working environment may lead to reduced productivity and talent attrition, making it difficult to build a development structure, which in the long term could result in a decline in the quality of deliverables and services, leading to loss of customer trust and erosion of corporate value. The Company is addressing this through strengthening new graduate and career recruitment, enhancing training and systems, and promoting health management.

In the shared-use cloud service business, relatively large-scale initial investments are concentrated within a short period at the start of service, which may cause temporary impacts on business performance and cash flow. Since recovery of the initial investment requires multiple years, if service provision is interrupted due to customer circumstances or unforeseen events, this could result in loss of revenue, deteriorating profit and loss, worsening cash flow, and the potential need for impairment of assets related to the cloud service business. The Company is taking measures to increase the certainty of investment recovery by concluding multi-year contracts.

Since the Company operates cloud service systems on behalf of its customers, if a system malfunction or failure causes damage to a customer's business operations, the Company may face claims for damages. If the amount of damages is large, this could have a direct impact on business performance, and could also lead to a mid- to long-term decline in sales through loss of customer trust. The Company is working to reduce this risk through the selection of highly reliable infrastructure, redundant configurations, regular monitoring, and the establishment of a failure response system.

The Company's strength lies in its technology and expertise specific to payment operations, centered on the FEP (Front End Processor) System, but if a disruptive technological innovation were to completely replace the existing technology framework, this could have a significant impact on the Company's business and performance. In particular, if the Company were to lose its technological advantage and market share in the FEP market, this could pose a risk of long-term deterioration in business performance. The Company is addressing this by continuing to accumulate knowledge of the proprietary technologies required for online transactions, such as network connectivity and data transfer.

Due to customers' cautious attitude toward system investment, intensifying competition among operators, and the emergence of new technologies that replace existing technologies, it has become difficult to raise order prices for services provided in the conventional manner. If the Company is unable to continue providing value that customers desire, it may lose out to competitors in price competition, potentially leading to a decrease in orders received and net sales. The Company strives to maintain its competitive advantage by building long-term customer relationships based on specialized knowledge and track record in specific functional areas.

In operations that handle important information assets, including customer information, if information is lost or leaked, the Company may face claims for damages from customers or a loss of credibility, which could affect business performance. Information leaks resulting from external cyberattacks pose a similar risk. As countermeasures, the Company has established a risk management framework through obtaining and maintaining Privacy Mark and PCI DSS certifications, establishing information security regulations, conducting monthly inspections and regular training for all employees, and setting up a Security Committee.

As the Company is responsible for the development and operation of systems essential to credit card payments, if infrastructure is damaged or suspended for a long period due to a large-scale natural disaster or similar event, business performance may deteriorate temporarily or over the mid- to long-term. Temporary suspension of system operations due to damage to facilities or communication failures may undermine customer trust. The Company is addressing this through regular data backups, system monitoring to strengthen robustness and redundancy of systems, and the formulation of a BCP with regular reviews and drills.

The parent company, Dai Nippon Printing Co., Ltd., held 50.77% of voting rights as of the end of the fiscal year ended June 2025, and there is a possibility that the company may take actions that are in its own best interest but not in the interest of other shareholders. The Company conducts regular transactions of a certain scale with Dai Nippon Printing Co., Ltd., primarily in the payment and security domains, and its influence is significant. As a countermeasure, the Company has established a system in which a Special Committee composed of independent outside directors and independent outside audit and supervisory board members thoroughly examines transactions with the parent company to ensure there is no disadvantage to minority shareholders.