NOVA SYSTEM CO.,LTD.

As the Company's principal business is system development, if customer companies' IT investment declines due to deterioration in economic conditions or market environment, this may affect operating results and financial condition. Although the timing of occurrence cannot be specified, the degree of impact is recognized as significant. The Company strives to grasp economic and market trends in advance and implement early countermeasures.

The substitution of manual work with software through the use of RPA and other technologies, as well as progress in customer companies' in-house system development, is bringing about changes in attitudes toward existing development structures that have relied mainly on outsourcing to specialized system development companies. If further technological innovation makes it possible to substitute programming work with software, this may affect the Company's operating results and financial condition. As countermeasures, the Company strives to improve engineers' technical capabilities and build development structures utilizing services provided by partner companies.

Amid intensifying competition for IT talent, securing and retaining excellent personnel has become an important challenge for business expansion. If securing and retaining personnel becomes difficult, this may affect operating results and financial condition. In addition, there is a risk that if work visa renewals for foreign national engineers are not approved, project delivery delays and other issues may occur. The Company strives to secure and retain personnel through regular and year-round recruitment, development of a comfortable working environment, establishment of personnel systems, and strengthening of training systems.

In the fiscal year ended December 2025, three companies—IBM Japan, Ltd., Nissay Information Technology Co., Ltd., and SCSK Corporation—accounted for 62.5% of net sales, indicating a high degree of dependence on specific customers. If major customer companies revise their transaction policies, this could have a severe impact on net sales. The Company strives to build continuous partnership relationships through the accumulation of system development track records.

The Company handles confidential information and personal information of customer companies, and if an information leak occurs due to external hacking or other causes, this may have a material impact on operating results and financial condition due to loss of social credibility and liability for damages. Although the Company has implemented measures such as obtaining ISMS and Privacy Mark certification, establishing an Information Security Committee, and implementing access restrictions and log acquisition, the likelihood of occurrence is recognized as low while the degree of impact is recognized as significant.

If a system failure occurs due to power outages, natural disasters, equipment or software malfunctions, human error, malware, or other causes, this may disrupt business activities and affect operating results and financial condition. The degree of impact is recognized as significant, and although the Company has implemented system failure countermeasures such as regular backups and monitoring of operational status, complete elimination of such risk is difficult.

The system development industry includes numerous competitors ranging from large to small and medium-sized companies, and if the Company falls relatively behind in technology or service standards, or if orders decline due to price competition for contracts, this may lead to a decrease in net sales. The Company strives to improve its technical capabilities through the enhancement of training systems such as programming training, qualification acquisition courses, and data scientist development programs, although the degree of impact is recognized as medium.

Because adjustments in expertise, experience, and personnel numbers according to the nature of each project are required, the Company relies on services provided by partner companies in addition to its own employees. If sufficient services from partner companies cannot be obtained, this may hinder the establishment of a development structure and affect operating results and financial condition. The Company has established a dedicated department and strives to build favorable relationships through the development of new partner companies, information exchange, and proposals of contract terms aimed at mutual benefit expansion.

The Company is subject to the Worker Dispatch Act in connection with the conclusion of dispatch contracts, as well as other legal regulations such as the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors and the Immigration Control and Refugee Recognition Act. If any violation of these laws and regulations occurs, this may affect operating results and financial condition due to revocation of business licenses or loss of social credibility. The Company strives to ensure thorough legal compliance through the establishment of a Risk Compliance Committee, cooperation with retained legal counsel, establishment of an internal reporting hotline, and compliance training.

In contract-based work, if additional requirements arise after project commencement, work or delivery delays occur, or the completed deliverables do not meet quality requirements, this may affect operating results and financial condition through reductions in contract amounts, additional costs, penalties for delay, or suspension of transactions due to loss of credibility. From the current fiscal year, the Company has fully commenced activities of its Project Risk Management Group, strengthening its risk management functions through development structure evaluation from the pre-order stage, progress monitoring, and support for engineer development.