TerraSky Co.,Ltd.

The Group's Solutions Business and Products Business are centered on Salesforce-related integration, and business growth is heavily dependent on the expansion of the Salesforce market. If the Salesforce market contracts or Salesforce, Inc. changes its management strategy, this could have a material impact on the Group's financial position and operating results. As countermeasures, the Group is working on expansion into the AWS and GCP domains, and on developing new businesses such as Quantum Computing R&D (Quemix), MSP business, and data utilization consulting business.

In the Salesforce-related business, there is competitive pressure from rapid improvements in sales capability and technical capability of competitors within the same domain, intensifying price competition, and the rise of SFA/CRM services similar to Salesforce as well as new entrants. These factors may lead to loss of deals or a decrease in the number of contracts, which could affect the Group's financial position and operating results. The Group maintains its competitive advantage based on its track record of project implementation and the number of highly skilled engineers, but continuous response to changes in the competitive environment is required.

The Group plans to actively expand its business on the premise of continued growth of the cloud market; however, if DX investment appetite declines due to deterioration in domestic and overseas political and economic conditions or business trends, this could lead to a decrease in the number of orders received and a failure to achieve sales growth. A shift toward IT investment restraint by companies could lead to a decrease in the number of new customers and a decrease in orders from existing customers, affecting the Group's financial position and operating results. The Group continuously monitors market trends while expanding its business, but the risk of unexpected growth slowdown cannot be eliminated.

In the IT market, the pace of change in demand trends accompanying technological innovation is extremely rapid, and delays in response may lead to loss of deals or a decrease in the number of contracts. In addition, if responding to such changes requires substantial expenditure such as system investment and personnel costs, profitability may decline, affecting operating results. The Group strives for rapid response by building a system to track the latest technology trends and by securing and training excellent personnel.

The Group handles information assets of numerous customers in the course of its business, and if important information is leaked externally, this could damage the Group's social credibility and give rise to liability for damages, affecting its financial position and operating results. As countermeasures, the Group is strengthening its information management framework through formulation of a basic information security policy, education and training for officers and employees, and obtaining ISO27001 certification. However, it is difficult to completely eliminate unforeseen events such as cyberattacks or internal misconduct.

The Group's services are highly dependent on the technical capabilities of its employees (engineers), and stably securing excellent personnel such as holders of Salesforce certified qualifications is a key challenge for business continuity. If recruitment and training do not proceed as planned, or if the outflow of excellent personnel continues, smooth provision of services and active order-taking activities may become difficult, affecting the Group's financial position and operating results. As of February 28, 2025, the number of employees was 1,404, and the Group is continuously engaged in recruitment and training activities.

The Group's policy is to expand its business domain through establishment of subsidiaries and affiliated companies as well as M&A including alliances; however, if issues that cannot be identified through prior due diligence arise, such as contingent liabilities or unrecognized liabilities of target companies, recovery of invested capital may become difficult, affecting the Group's financial position and operating results. In addition, increases in personnel costs due to increased hiring and enhanced training, as well as additional expenditures for capacity expansion and business development investment, are expected, and it will take a certain amount of time for new businesses to generate stable profits. In overseas expansion, addressing potential risks such as laws, regulations, political and social conditions, exchange rate fluctuations, and the competitive environment of each country is also a challenge.

The Group takes orders for projects after securing an appropriate profit margin based on estimated man-hours; however, if development man-hours increase significantly due to unforeseen defects or other issues, unprofitable projects may arise, affecting the Group's financial position and operating results. In the Solutions Business, which adopts a revenue recognition method based on percentage of completion, there is also a risk that increases in man-hours will increase cost of sales and cause fluctuations in the percentage of completion, resulting in a shift in the timing of sales recognition between periods. The Group strives to reduce these risks by managing personnel, progress, and budget for each project.

The Group settles transactions with Amazon Web Services, Inc. in US dollars, and fluctuations in the US dollar/yen exchange rate may affect both net sales and cost of purchases. In the event of sharp exchange rate fluctuations, this could affect the Group's financial position and operating results. The Group strives to minimize this risk by implementing hedging measures such as forward exchange contracts as necessary, but complete avoidance of this risk cannot be guaranteed.

Hideya Sato, Representative Director, CEO and President, plays an important role as founder in formulating business strategy and leveraging industry networks, and the Company itself recognizes that its current dependence on him is high. If, for any reason, he becomes unable to continue performing his duties, this could affect operating results and future business development. The Group is working to reduce excessive dependence through strengthening its management framework and developing management executives, but at present dependence remains high.