Among the matters related to Business Overview and Financial Information, as described in the Annual Securities Report, the Management considers the following to be the major risks that may have a significant impact on the financial position, operating results, and cash flows of the Group.
The degree and timing of the possibility that such risks may materialize and the impact of such risks on the Group's operating results, if they materialize, are not stated because it is difficult to reasonably foresee. Forward-looking statements are based on the judgment of the Group as of the end of the current consolidated fiscal year.

(1) Business Environment

The environment surrounding us is facing an urgent need to improve productivity as we enter an era of ageing populations with declining birthrates, and a shrinking workforce due to population decline. Moreover, there remains a need to respond flexibly to changes in the economic and social environment, such as inflation due to the impact of exchange rates, resource and energy prices, and concerns over an inflation-induced slowdown in private consumption. Furthermore, our business model faces the need for change as the use of cloud computing progresses and the trend from hardware to software continues. For each business, the advancement of fintech, the shift to a cashless society, reforms in work styles, changes in legal systems, and the transition of next-generation mobile communication system services are expected to affect our future performance.

It is not easy to be optimistic about the business environment for financial institutions, especially regional banks, which are positioned as our strong business domain, given the prolonged low interest rates and the impact of legal reforms, as well as the expansion of alliances aimed at strengthening the management base through diversification of businesses, including entry into regional business, and for regional department stores, where the severe situation continues due to the sluggishness of the regional economy. We are committed to contributing to the earnings of our clients by providing various solutions that lead to operational efficiency and business expansion. However, if the severe business environment continues to have a significant impact on their business performance and IT investment plans, our performance may be affected. While we are working to expand our cashless payment business, which is our strategic business line, our performance may be affected in the event that our business expansion does not progress due to issues such as the business conditions of merchants who install our “iRITSpay Payment Terminals”, trends in the semiconductor market, or intensifying competition.

Moreover, our performance may be affected in the event of performance or financial issues arising from M&A deals. While we will strive to acquire new technologies such as AI and blockchain, and market new products that make use of them, our performance may be affected if we do not make sufficient progress in technological development and our competitors outpace us.

(2) Competition

We provide unique solutions and comprehensive hardware and software services, including network infrastructure, with accumulated system expertise superior to that of our competitors by focusing our business strategies on areas related to systems for the financial industry and the distribution and retail industry. However, the Group is facing increased competition from established major computer manufacturers and specialized system integrators. In addition, while we are striving to expand our sales by offering high-quality solutions, the downward pressure on unit prices is increasing as the prices of information and telecommunications equipment are declining. Our performance may be affected by further intensification of such competition among companies and a continued downward trend in selling prices.

(3) Exchange Rate Fluctuations

Nearly 50% of the Group's merchandise procurement is imports, and transactions are denominated primarily in U.S. dollars. In order to mitigate the risk of exchange rate fluctuations, the Company enters into forward exchange contracts within the limits of foreign currency-denominated accounts payables and orders placed. The counterparties of forward exchange contracts are all domestic banks with high credit quality, and the Company believes that there is almost negligible so-called credit risk associated with nonperformance of contracts by the counterparties.

However, although it is possible to mitigate the impacts of exchange rate fluctuations through forward exchange contracts, it is impossible to eliminate all risks, including indirect effects, and our performance may be affected by exchange rate fluctuations, as a continued significant depreciation of the yen would be a cost-increasing factor.

(4) System (Product) Development and Quality Control

The lifecycles of information and telecommunications equipment handled by the Group tend to shorten each year, and although we source the latest information technology and equipment in Japan and overseas, and provide them to our clients, our performance may be affected if we fail to keep pace with technological advances or if we fail to implement appropriate product strategies. In addition, the Company make efforts to optimize inventory levels by disposing of inventory items held by the Company that are more than two years old if there is no possibility of sale.

Our performance may be affected by the emergence of products that are similar to or competitive with, systems developed independently by the Group and for which patent rights have not been granted, and for which the Group has secured a high market share.

In addition, the Group develops, manufactures, and provides maintenance (hardware and software) services for packaged systems that meet clients' needs, and software based on clients' requirements, and thoroughly controls the quality of these services to guarantee quality and improve client satisfaction. In addition, the Company has obtained ISO 9001:2015 certification and has established a quality manual and quality targets to ensure thorough quality control. The Company has also obtained ISO27001:2013 certification, a domestic standard for an information security management system, and is striving to improve our services to our clients. However, in the event that a quality problem occurs in the services provided by the Group, our performance may be affected by additional costs incurred in dealing with the problems or compensation for damages.

(5) Information Security

We have opportunities to come in contact with important information, including personal information, with the consent of our clients. In addition to obtaining the PrivacyMark certification, the Company has introduced our self-developed “Entry and Exit Control System” and tools for visualizing PC activity logs, throughout the Company to ensure thorough information management. As for the management organization, head of each business division is responsible for security management within his/her division, and each division is assigned information management staff. We will continue to take all possible measures to manage information, but any leakage of important information from the Company may have a serious impact on our ability to continue as a going concern.

(6) Natural Disasters

The Company has data centers in Tokyo and Osaka, and has taken measures to prepare for a large-scale earthquake, such as the development of a business continuity plan (BCP), introduction of a safety confirmation system, earthquake resistance measures, and disaster drills. However, in the event of a disaster beyond the scope of our disaster prevention management system, such as a catastrophic earthquake, our business operations may be affected due to unforeseen circumstances such as power outages and communication line failures.

(7) Seasonal Fluctuations in Performance

In the information service businesses, to which we belong, shipments and deliveries to clients tend to concentrate in March.

However, for large-scale projects in system development, an increasing number of orders are being split by process for the purpose of improving the accuracy of development estimates and schedules, rather than the traditional lump-sum orders. In addition, in the previous and current consolidated fiscal year, sales in the third quarter were delayed to the fourth quarter, and as a result, sales were concentrated in the fourth quarter. We will closely monitor future trends.
The status of changes in performance for the previous and current consolidated fiscal years is as follows.

(8) Business Alliances

We intend to continue to actively pursue business alliances and other opportunities to expand and stabilize our businesses. However, our performance may be affected if the synergies initially envisioned by us do not materialize or if the performance of the alliances or investee companies does not meet our expectations.