System D Inc.

The Group's net sales tend to be concentrated in March and September. In FY2025 (ending October 2025), net sales of ¥1,794,497 thousand (35.7% of the total) were concentrated in the second quarter (February to April). This is primarily due to product implementation schedules aligned with customers' fiscal years, and dependence on specific quarters affects financial stability. As a countermeasure, the Group is promoting the expansion of recurring revenue to smooth out fluctuations, but this has not fully resolved the issue.

In the market for industry-specific packaged software targeting schools, local governments, and wellness facilities, competitors exist in all fields. If competitors provide superior systems or services, this may adversely affect the Group's market share and profitability. The Group seeks to differentiate itself by providing total solutions specialized for specific industries, but there is a risk that changes in the competitive environment could affect operating results and business development.

Rapid advances in computer technology and network technology pose a risk that the competitiveness of existing systems could decline in a short period. If technological innovation progresses faster than expected, it could render the Group's products and services obsolete, potentially having a material impact on operating results and business development. The Group continues to respond to technological progress through software development activities and other means, but the risk of falling behind cannot be eliminated.

If a third party's intellectual property rights are established in the Group's business domain, or if existing intellectual property rights of which the Group is unaware exist, there is a risk of facing claims for damages or injunctions against use. Although no lawsuits have been filed in the past, this could affect the Group's financial position and operating results. Relevant departments are engaged in information gathering and response, but complete avoidance is difficult.

If any defects occur in delivered packaged software or other products, this could affect the Group's financial position and operating results due to correction costs, damages liability, and loss of credibility. There have been no past lawsuits filed by users seeking damages for defects attributable to the Group, and the Group conducts thorough internal checks before delivery. However, the risk remains should such circumstances arise in the future.

In the School Solutions Business, the progressing decline in the birthrate could worsen the management environment of customer institutions such as universities, junior colleges, and vocational schools, potentially leading to a decrease in IT investment. The Group judges that business opportunities are expanding due to the management efficiency needs of each school and the expansion of the cloud business for public elementary, junior high, and high schools, but there is a risk that a deterioration in the management environment beyond expectations could affect operating results and business development.

As of the end of the current consolidated fiscal year, the Group is small in scale with approximately 300 employees, and its internal management structure remains commensurate with its organizational size. If personnel reinforcement and enhancement of the internal management structure for business expansion do not proceed smoothly, this could affect operating results and future business development. The Group is working to strengthen personnel and further enhance its internal management structure, but vulnerabilities stemming from its small organizational size remain an ongoing challenge.

Failures in network equipment, server facility malfunctions, unauthorized access, and similar incidents could disrupt business activities. While the Group implements measures such as regular backups, server load balancing, and security measures to prevent unauthorized access, if trouble arises from unpredictable factors, this could affect operating results and business development. For the Group, whose main business is information and communications, failure in information management is a critical risk directly tied to business continuity.

In customization projects for packaged software tailored to customer requests, if customer requirements change after an order is received, unexpected additional development costs may arise, potentially affecting the Group's financial position and operating results. While the Group has established a system to thoroughly confirm customer requirements before receiving orders, it is difficult to completely eliminate the risk of requirement changes. Given the business characteristic of having numerous customization projects, there is a risk that the accumulation of cost overruns could put pressure on profitability.

Natural disasters such as earthquakes and wind/flood damage could cause damage to offices, facilities, employees, business partners, and others, directly or indirectly affecting the Group's business activities. While the Group implements measures such as risk management of various information assets and ensuring employee safety, damage cannot be completely avoided, and the risk of an impact on financial position and operating results remains.