TECHMATRIX CORPORATION

The Group conducts business under multiple laws and regulations, including the Worker Dispatching Act, the Pharmaceuticals and Medical Devices Act (designation of medical imaging systems as controlled medical devices), and the Telecommunications Business Act. If legal violations occur or related laws and regulations are enacted or amended, this may result in increased regulatory compliance costs and adversely affect business performance and financial condition. Revisions to medical treatment fee schedules can directly impact the performance of the Medical Systems Business. The Group strives to comply with each permit condition and applicable laws, but not all risks can be eliminated.

While handling personal information and confidential information of client companies, if information leakage or tampering occurs due to computer viruses, unauthorized access, natural disasters, or other causes, there are concerns of claims for damages and deterioration of business relationships due to loss of trust. As countermeasures, the Group obtained ISO/IEC 27001 certification in November 2006, and implements quarterly PDCA cycle management by the Information Security Committee, annual internal and external audits, and security training for all employees. However, these measures cannot eliminate all risks.

The systems and cloud services provided by the Group play an important role in customers' business operations, and if a failure occurs due to defects or operational errors, this could lead to claims for damages and damage to credibility and brand image. The Group strives for system design that takes fault tolerance into account, but the risk of failure occurrence cannot be completely eliminated.

In contracted development within the Application Services Business, excess costs may arise due to estimation errors, delays in work progress, and fulfillment of liability for non-conformance with contracts, which may lead to deterioration in project profitability. If profitability deteriorates, this will directly affect the Group's business performance and financial condition.

The majority of products procured from overseas are transacted in US dollars, and sharp fluctuations in exchange rates affect procurement costs. The Group hedges through forward foreign exchange contracts and negotiates prices with customers, but not all risks can be hedged, and in situations of sharp yen depreciation, business performance and financial condition may be adversely affected.

The Group records packaged software for market sale and software for cloud/ASP services as intangible assets. If usage prospects disappear due to sudden changes in the market or competitive landscape, or if investment recovery becomes unlikely due to declining profitability, disposal or impairment processing becomes necessary. If such a situation occurs, it may have a material impact on the Group's business performance and financial condition.

Although seasonality has diminished with the promotion of stock-type businesses, there is a tendency for revenue recognition to concentrate at the end of the full fiscal year (end of March) due to the timing of customers' budget execution and development schedules. If completion of service provision and revenue recognition are delayed beyond the fiscal year-end due to concentration of engineers' workload or unforeseen circumstances, this may affect business performance and financial condition for that period.

With the progress of cloud service adoption in the cybersecurity field, large-scale continuing transactions such as multi-year subscription contracts are increasing. While collection of funds from customers is divided into annual installments, payments to overseas vendors in some cases are made as lump-sum advance payments. The gap between this collection cycle and the burden of advance payments creates a cash flow burden, requiring appropriate cash flow planning management.

If the business activities of employees or business partners are affected by a pandemic or natural disaster, this could significantly hinder the Group's business continuity. Additionally, if supply chain disruptions spread to the overall economy, this could adversely affect investment trends in the products, maintenance, and IT services provided by the Group.

Heightened geopolitical risk may cause disruptions to international logistics, supply chain disruptions, delays in procurement of overseas vendor products, and impacts on cloud services and information security environments. The Group is diversifying its procurement sources, strengthening inventory and contract management, and enhancing security measures and BCP, but if events beyond expectations occur, this may affect business operations, performance, and financial condition.