SOFTTEX CO., LTD

Economic deterioration caused by significant political and economic changes domestically and internationally may lead to reduced capital investment by customers, postponement of development plans, and in-house development of systems, resulting in a shrinking market for the Company. Geopolitical risks such as heightened tensions in the Middle East may also cause rising crude oil prices and sustained high energy costs, potentially affecting customers' investment decisions. As countermeasures, the Company is promoting risk diversification through multiple services and expanding its stock-type business.

In the course of providing Medical IT Services, the Company accesses databases containing clients' personal and confidential information. If information leakage, loss, falsification, or unauthorized use occurs due to human error or employee misconduct, there is a risk of reputational damage and unexpected costs from damages compensation. Damage from unauthorized external access or computer viruses is also anticipated. As countermeasures, the Company operates its information security management regulations, has obtained the Privacy Mark, and conducts network vulnerability assessments and targeted email attack training.

Continuous recruitment and enhanced training of excellent personnel are necessary to expand business and maintain high-quality services; however, there is a risk of impact on business and results if recruitment and training do not proceed as planned. Amid the ongoing tight supply-demand balance for IT personnel, intensifying competition for recruitment is a concern. As countermeasures, the Company is strengthening recruitment of international students in Okinawa, differentiating itself in the mid-career recruitment market through improved working conditions, and working to reduce turnover rates.

Due to difficulties in finalizing detailed requirements before order acceptance and issues with staffing structure and skills during the development process, significant discrepancies between estimated and actual man-hours may occur, leading to additional costs and post-delivery troubles or claims that could affect business results and financial position. The increasing complexity of systems due to requirement changes and other factors tends to raise the level of difficulty. As countermeasures, the Company is improving estimation accuracy based on past track records, clarifying contract scope, thoroughly managing changes, and conducting requirements definition, reviews, and testing.

If applicable laws such as the Act on the Protection of Personal Information, the Worker Dispatching Act, and the Act on Proper Conduct of Subcontracting Transactions with Small and Medium Enterprises are revised or made stricter, this may impose restrictions on the services provided and increase business operation costs, affecting operating results and financial position. If violations of laws such as disguised contracting or multi-layered dispatching occur, this could seriously impede business continuity. As countermeasures, the Company has established a system for early detection and correction of legal violations through regular employee surveys and interviews.

Orders for large-scale development projects and migration projects are highly dependent on the sales activities of system integrators, and there is a risk that order opportunities will decrease if such activities slow down or contract. A high concentration of dependence on specific system integrators could amplify this impact. As countermeasures, the Company is strengthening collaboration with multiple partners and promoting direct customer acquisition under its own brand to stabilize its order structure.

Regarding business partners to whom work is outsourced when in-house development capacity is insufficient or specialized technology is required, there is a risk that securing personnel may become difficult or outsourcing costs may rise due to changes in the supply-demand balance for engineers. A high degree of dependence on specific partners could significantly affect the development structure and service delivery capability. As countermeasures, the Company is building relationships with multiple partners, securing stable supply through long-term contracts, and strengthening in-house engineer training programs.

On the Standard Market of the Tokyo Stock Exchange, the market capitalization of tradable shares is close to the exchange's formal listing requirement standards. If performance improvement measures fail to succeed or stock market conditions deteriorate, causing the market capitalization of tradable shares to fail to increase as expected or to decline, there is a risk of impact on the continuation of listing. If the Company were to be delisted, this could result in the loss of fundraising means and a decline in corporate credibility. As countermeasures, the Company is working to increase its market capitalization through business growth, enhance its dividend policy, strengthen its IR framework, and consider capital policy measures.

Regarding the accreditation as a "JMA IT Certified Support Office" required to provide ORCA installation and maintenance services within Medical IT Services, if the accreditation is revoked or cancelled due to violations of relevant laws or improper management of personal or confidential information, the Company could lose its competitive advantage in the medical field, affecting business results and financial position. As countermeasures, the Company has established a system for regularly confirming compliance with accreditation requirements, ensuring thorough compliance among partner companies, and responding promptly to system changes through regular communication with the accrediting body.

Due to the timing of customers' budget execution and the impact of delivery and progress on large-scale development projects, quarterly sales are not evenly distributed, and there is a possibility that the recording of sales and profits may be pushed back to subsequent periods, or that an operating loss may be temporarily recorded. In the fourth quarter of FY2025 (ended March 2025), the Company recorded an operating loss due to a decrease in orders following the termination of the global help desk and an increase in bonus provisions, among other factors. Investors need to evaluate quarterly performance fluctuations separately from full-year results.