CRESCO LTD.

In software development and maintenance, if additional man-hours arise due to client requests for specification changes or unexpected technical mismatches, or if the Company faces claims for damages based on non-conformity liability for delivered products, this could damage the Company's creditworthiness and affect operating results. In the fiscal year under review, the Company recorded a provision for loss on order receipts of ¥119 million. The Company promotes quality management processes centered on the Quality & Process Management Headquarters to prevent such risks from materializing.

If confidential information or assets of third parties are leaked or lost due to cyberattacks or internal negligence, this could lead to liability for damages and reputational damage, potentially having a material impact on operating results. As an IT services company handling a large volume of client confidential information, information security risk is fundamental to the business. The Company seeks to minimize adverse effects through regular compliance checks, raising compliance awareness among officers and employees, and establishing a response framework for security incidents.

If a large-scale natural disaster or epidemic causes damage to information systems necessary for business operations or makes it difficult for employees to go out, business continuity could become difficult, potentially affecting operating results. The Company addresses this through formulating and implementing BCP (Business Continuity Plan) measures, including promoting cloud migration of systems and enhancing telework arrangements.

Against a backdrop of tight supply and demand for IT personnel, if the Company is unable to secure development personnel as planned and cannot achieve appropriate collaboration with partner companies, this could hinder project launches and execution as well as service provision, potentially affecting operating results. In addition to active recruitment through work-style reforms such as telework and office space strategies, the Company is addressing the domestic personnel shortage by expanding recruitment of foreign nationals and utilizing offshore resources.

In aggressive M&A and alliance investments aimed at expanding business domains, if the initially expected effects are not realized, this could affect operating results through recording of impairment losses on goodwill and similar items. The Company has established a group management framework centered on the Group Services Headquarters and conducts post-investment monitoring.

As the Company holds a large amount of financial instruments, significant fluctuations in financial markets could cause the value of held financial instruments to decline, potentially affecting operating results through the recording of valuation losses on securities and similar items. The Finance & Accounting Department has established an investment management framework to manage this risk.

If damage is caused to a third party in the course of conducting business, the Company could face litigation seeking damages, potentially affecting operating results. The Company seeks to prevent such risks from materializing through the establishment and operation of the risk management frameworks described above.