O.B.System Inc.

Rapid technological innovation in the information services industry is progressing, particularly the rapid mechanization of software development through generative AI. If the Group fails to predict or recognize the direction of technological change, or falls behind competitors in technological innovation, this could lead to a decrease in orders from existing customers and stagnation in acquiring new customers. As countermeasures, the Group is focusing investment on education related to generative AI and cloud technologies, as well as on securing highly skilled technical personnel.

In FY2026 (ending March 2026), Hitachi, Ltd. accounted for 33.1% of net sales (57.0% for the Hitachi Group as a whole), BIPROGY Inc. accounted for 9.0%, and Mitsubishi Electric Software Corporation accounted for 8.6%, resulting in a high degree of dependence on specific customers. If orders decrease significantly due to major changes in the industry environment or changes in the business policies or sales strategies of major customers, this could have a significant impact on business performance and financial condition. The Group manages the sales ratio on a monthly basis and is working to optimize its dependence by expanding sales activities to customers other than these specific customers.

As system development becomes larger in scale, more advanced, and more complex, development difficulty is increasing, creating a risk of delivery delays and quality nonconformance. If nonconformance liability arises under a contracted development agreement, this could result not only in payment of damages and unprofitable projects but also in loss of customer trust and loss of business relationships, potentially having a significant impact on business performance and financial condition. The Development Promotion Division promotes standardization of project progress monitoring, risk management, and quality management from the point a deal arises.

In system development, there is a possibility of infringing on copyrights or patent rights owned by other companies beyond the Group's awareness, and if substantial costs or claims for damages arise, this could have a significant impact on business performance and financial condition. The Group promotes company-wide efforts through intellectual property protection education for all employees based on its 'Regulations on Intellectual Property Education and Training' and ongoing monitoring by the Compliance and Risk Management Committee.

In the course of building, maintaining, and operating customers' information systems, the Group handles important information assets, including personal information, and there is a risk of information leakage due to cyberattacks, including ransomware, as well as human error. If an information leak occurs, this could affect business performance and financial condition through claims for damages from customers or loss of trust. The Group has implemented measures such as obtaining ISMS certification and the Privacy Mark, establishing an Information Security Committee, and conducting employee training and access log management.

The Group's growth and profits are heavily dependent on its personnel, and amid expected increases in labor costs, recruiting and developing excellent engineers and systems engineers has become an important issue. If the Group is unable to properly secure and develop human resources, this may make appropriate personnel allocation difficult, leading to long working hours and workplace accidents, as well as constraining business expansion, potentially affecting business performance and financial condition. The Group is addressing this through active recruitment of new graduates and mid-career hires, training by job level and technical rank, and securing sufficient budget for on-demand external technical training.

In FY2026 (ending March 2026), outsourcing costs accounted for a high 42.6% of manufacturing costs, making the securing of partner companies and the maintenance of good business relationships essential for expanding orders. If the Group is unable to receive sufficient services from partner companies due to rising outsourcing costs or other factors, this could affect business performance and financial condition. The Group implements measures such as selecting and continuously evaluating new partner companies under its outsourcing management regulations, working to stabilize business relationships.

The system integration services provided by the Group are highly susceptible to economic conditions, and the market size could shrink due to deterioration in economic conditions leading customer companies to reduce or internalize their system investments. Deterioration in domestic system investment trends or worsening market conditions in customers' business fields could lead to decreased orders from existing customers and stagnation in acquiring new customers. The Group aims to mitigate this risk by diversifying its business domains across four service lines: Financial Business, Industrial & Distribution Business, Public & Social Infrastructure Business, and IT Innovation Business.

OBIC Co., Ltd. holds 27.88% of total issued shares, and founder and advisor Mr. Takashi Yamada holds 23.45%, and if there is a change in their shareholding policies or a significant fluctuation in voting rights ratios, this could affect the Group's business operations. In addition, the Company's Audit & Supervisory Board Member concurrently serves as an executive officer of OBIC, and the possibility of a future competitive relationship arising cannot be ruled out. The Group strives to enhance objectivity and rationality and ensure independence through the establishment of a Nomination and Compensation Committee comprising a majority of outside officers.

The Group has obtained permission from the Minister of Health, Labour and Welfare as a worker dispatch business operator for dispatching employees to customer sites, and if grounds for disqualification as a dispatching business operator arise or the Group fails to respond to changes in legal regulations, its permit could be revoked or its business could be ordered to suspend operations. If business operations are suspended, this could hinder business activities and affect business performance and financial condition. At present, the Group strives to comply with the Worker Dispatching Act, and no factors that would hinder business activities have arisen.