Risk Factors

Among the matters related to the state of our business and accounting, those that may become risk factors and that may have a significant impact on the decisions of other investors are described.
The following forward-looking statements are based on our judgment as of the filing date of this Annual Securities Report (June 29, 2021).Detail of these, please refer to IR-Library - Securities Report.

(1) Transactions with Overseas Vendors

Our products include Palo Alto Networks, Inc. (U.S.), and other overseas network equipment manufacturers and software development vendors. These products account for approximately 60% of the purchase price in the current consolidated fiscal year. In addition, our group's business strategy of dealing in highly novel technologies include small overseas venture companies as our suppliers. In the event that such a supplier is acquired, if a Japanese corporation is established to revise the sales network, or if it goes bankrupt, there is no guarantee that the Group will be able to continue the same sales agency rights as before, and in some cases it may become difficult to procure products. Our Group constantly strives to strengthen relationships with suppliers, but in the unlikely event that our Group's main product procurement is hindered, our Group's performance may be seriously impacted.

(2) Competitiveness of Products

At present, We recognize that the products handled by our group are mainly highly competitive products that have become the de facto standard in each product field, and we are working to improve our business structure so that it is less susceptible to the impact of the decline in the competitiveness of our suppliers by increasing value-added businesses such as solutions and integration. However, technological innovation in the IT industry is remarkable and competition is intensifying. If our Group or suppliers are unable to respond to technological innovations or to price decrease , our Group's business may lose its competitiveness which may have a significant impact on business performance and financial position.

(3) The competitiveness of our group

The Group strives to differentiate itself from its competitors and secure added value in each of its businesses by procuring cutting-edge products, developing package software in call centers, medical and other specialized business fields, and providing cloud services. Nevertheless, there is a possibility that the competitiveness of our Group will decline due to the entry of major companies into the fields in which we are leading, the emergence of new companies, and other factors. In addition, in an environment in which corporate IT investment is restrained due to economic stagnation and other factors, intensified price competition with other companies may reduce sales and profits,, which may have a significant impact on business performance and financial position.

(4) Potential of System Failure

Systems and cloud services provided by our group play an important role in customer operations. In the event that a serious failure occurs due to defects or operational errors in these systems or cloud services, we may be required to compensate for the damages incurred, or the creditworthiness and brand image of the Group as a whole may be influenced, which may have a significant impact on the business performance and financial position of the Group as a whole.

(5) Impact of Exchange Rate Fluctuations

The majority of our products purchased from overseas are contracted in U.S. dollars. The Group enters into forward exchange contracts to hedge the risk of exchange rate fluctuations and negotiates prices with customers depending on the circumstances. However, if there is a sudden fluctuation in the exchange rate, the Group's performance may be affected, which may have a significant impact on business performance and financial position.

(6) Profitability of consigned development projects

The consignment development undertaken by our group in the Application Services Business Division, there is a possibility that the Company will incur excessive costs due to errors in project estimates, delays in work progress, the fulfillment of warranty obligations, etc., and the profitability of the project may deteriorate. In addition, there is a possibility that the recording of sales or collection of receivables may be delayed due to delays in acceptance inspections. In such cases, our Group's business performance and financial position may be affected.

(7) M&A, Capital and Business Alliances

We consider M&A and capital and business alliances with other companies in the same industry and with other companies that can complement our group's businesses to be important management issues as a means of expanding our market share and business scale.
 In conducting mergers and acquisitions, the Group conducts detailed due diligence on its financial, tax, legal, business, and other matters with the aim of reducing various risks. However, after conducting due diligence, if an event that could not be confirmed or anticipated by these investigations is discovered or occurred, the Group's performance and financial position may be adversely affected. In addition, M&A does not necessarily progress smoothly as we anticipate. Even if M&A is implemented, there is no guarantee that synergies in the business or business efficiency will occur, and there is a possibility that synergies will occur, such as changes in the profit structure of our group.
 In addition, the Group holds shares in affiliated companies and business partners through M&A and capital and business alliances. The Group generally recognizes changes in the fair value of these securities. Therefore, declines in the value of such securities could have an adverse effect on our group's financial condition.

(8) Legal regulations

We and our group companies (Cross Head Inc.,OCHead Co., Ltd. ,CASAREAL and Inc.,ARECCIA Fintech Corp.) have obtained a license for the temporary staffing business based on the Worker Dispatching Act and provide engineer dispatch services.
In the medical field of the application services business, under the revised Pharmaceutical Affairs Law that took effect in April 2005, certain products of medical imaging systems developed and sold by NOBORI Co., Ltd., our consolidated subsidiary at that time(NOBORI merged with PSP Corp., which became a consolidated subsidiary of the Company in February 2022, effective April 1, 2022, with PSP as the surviving company and NOBORI as the absorbed company), were designated as "managed medical devices.As a result, the Company has obtained licenses for manufacturing, marketing, and sales leasing (the current sales and lease business) under the Pharmaceutical Affairs Law at that time, and we also comply with the law amendments when the Pharmaceutical Affairs Law was revised to the Pharmaceutical Equipment Law in November 2014.Revisions to medical treatment fees may also affect the performance of the segment.
In the CRM, business solutions, and medical fields, the Group has submitted telecommunications business reports based on the Telecommunications Business Act, and provides services based on these reports.
Our Group endeavors to comply with the terms and conditions of the relevant permits and the laws and regulations. However, in the unlikely event of a violation of the law, or in the event of the enactment or change of the relevant laws and regulations, as well as trends in administrative responses, our Group's performance and financial position may be affected.

(9) Fluctuations in Performance Due to Acceptance Timing

As a result of the promotion of the stock-type business, the seasonality in which net sales are biased toward a specific period is diminishing. However, due to the timing of budget execution by client companies and the timing of system development, there is a tendency for the completion of services and recording of net sales to be concentrated in some areas at the full fiscal year (end of March). In particular, the situation tends to be conspicuous in March, when the end of a customer's fiscal year is concentrated. Therefore, if the completion of the provision of services and the posting of sales are delayed beyond the end of the fiscal year due to the concentration of engineers' work or unforeseen circumstances, our Group's performance and financial position may be affected.

(10) Securing human resources

The Group is aiming to expand its high-value-added stock-type business, which is not a typical labor-intensive business in the IT service industry. However, for further growth, it is essential to recruit and train talented personnel. In our group, we hire a wide range of experienced personnel with high potential for regular hiring of new graduates, and mid-career hiring can be used as immediate work force.
As IT penetrates into all industries, competition for the acquisition of IT human resources is becoming fierce not only among companies in the same industry, but also among companies in other industries and venture companies. If we are unable to sufficiently secure and develop the human resources necessary for business expansion in the future, there may be an impact on our business development, operating results and financial condition.

(11) Intangible assets (software)

Our Group recognizes intangible assets as intangible assets of software for sale in the market (package software) and software for third-party provision (cloud services and ASP services) for internal use and amortizes them over a certain period of time.
In the development of software, we are carefully looking at the marketability of the software. However, if the software is no longer expected to be used in the future due to rapid changes in the market and competitive conditions, or if the recovery of investments is no longer expected due to a decline in profitability, the software may be subject to retirement or impairment.
In such cases, our Group's performance and financial position may be affected.

(12) Pandemics and Natural Disasters

The occurrence of a pandemic (a worldwide pandemic of infectious or contagious diseases) or a natural disaster, such as a natural calamity, that affects the business activities of our group's employees or business partners could have a significant impact on the continuation of our business.In addition, if supply chain disruptions or other disruptions in economic activity spill over, they could affect investment trends in the products, maintenance, and various IT services provided by the Group. and maintenance, and various IT services provided by the Group. In such cases, the Group's performance and financial position may be affected. In such cases, the Group's business performance and financial position may be affected.

(13)Funding for Large Ongoing Transactions

In recent years, the cyber security field has been shifting to cloud services, and there is a trend toward larger ongoing business contracts with customers, such as multi-year subscription contracts.In such cases, there are cases where funds are collected from customers every single fiscal year, while payments to overseas vendors are made in a lump-sum advance.In this case, the Company will incur a cash management burden. Therefore, the gap between the collection cycle and the advance payment burden should be closely monitored and taken into account in the cash management plan.

(14)Information Security

Our group is engaged in a wide range of businesses and may handle personal information, confidential information, and other information held by client companies. Leakage or falsification of such information due to computer viruses, unauthorized access, or other unforeseen circumstances, such as natural disasters, could result in claims for damages from client companies, etc., or deterioration of business relationships due to loss of trust in our Group, which could affect our Group's performance and financial position. This could affect the Group's business performance and financial position.
To this end, we have established internal rules for information security management and personal information protection in line with the basic policy of our internal control system. we have acquired the international standard "ISO/IEC 27001" and the domestic standard "JISQ27001" through an audit by an external certification body in November 2006, and since the acquisition Since then, we have undergone regular audits or renewal audits every year.
As an internal structure, the Information Security Committee, headed by the top management, is composed of the Information Security Committee, which meets quarterly to share the implementation status of the PDCA cycle related to information security management and to discuss internal issues(Reinforcement of security measures, etc.).(Secretariat meetings, led by Corporate Division employees, are held monthly.)
Evaluation of the operational status is conducted annually through internal and external audits. In addition, the Company has established a system that enables prompt resolution of security incidents and minimization of damage. In addition, security training for all employees is conducted on a regular basis every year, and the department where the incident occurred conducts refresher training and takes other measures to prevent recurrence.
In addition, a CSIRT(Comtuter Security Incident Response team)was established as an organization to handle security incident response. By strengthening predictive signs and monitoring from logs, developing response procedures for each incident level, and conducting training, an organization capable of handling everything from detection to recovery has been realized. We will continue to strengthen cooperation with related internal and external organizations.We will continue to strengthen cooperation with related internal and external organizations.