XNET Corporation

The Company's services are built on the premise of specific environments such as hardware and OS, and the Company continuously implements application modifications to respond to changes in these technologies. While the Company gathers information on technology trends from hardware manufacturers, database and OS vendors, etc., responding to major IT technology changes may result in increased investment amounts and delays in service provision timing.

It is realistically difficult to completely eliminate defects in the applications provided, and the Company strives to improve inspection accuracy through the establishment of a quality control team and cooperation with development companies. When defects occur, there is a risk of liability for damages to customers and increased work costs for the Company, but to date no event has occurred that has had a material impact on business performance.

The majority of the Company's customers are financial institutions, and the Company is continuously required to respond to new product introductions and system changes. There have been no past cases of delayed service launch due to such development work, but if the scale and frequency of system changes expand in the future, the risk of increased response costs and delays in service provision cannot be completely ruled out.

Financial institutions that are the Company's customers are exposed to domestic and international competition, and if mergers and reorganizations among financial institutions, both domestic and overseas, progress, this may affect the Company's business results through a decrease in the number of customers and a reduction in contract scale. Trends in the reorganization of the financial industry are factors outside the Company's control, and this is an area that requires continuous monitoring.

With the progress of full-service expansion, the use of the Company's owned servers has increased; servers for the asset management full service are installed in Shinagawa-ku, Tokyo, while other servers are installed in Nagano City, Nagano Prefecture. There is a risk that services could be suspended if a large-scale disaster occurs in either installation area. The fact that servers are not duplicated is clearly stated in contracts with customers, but the Company has implemented measures such as providing backup center services and storing backup tapes at separate locations.

In the software field, human resources are the most important management resource, and securing excellent personnel is essential for the continuation and quality improvement of services. The Company strives to secure personnel through year-round recruitment, but cannot rule out the influence of employment trends among competitors and other industries, and there is a risk that difficulty in securing personnel could lead to delays in service provision.

Securing intellectual property rights such as patent rights and copyrights, and non-infringement of third-party rights, are important issues for the applications developed and services provided by the Company. If issues related to intellectual property rights arise due to differences in legal systems across countries around the world, this may affect the Company's business performance and financial condition.

The Company has established an information security policy and implements measures such as thorough employee education and security management of computers. Despite these efforts, if information leakage occurs, in addition to a negative impact on business performance, this could lead to a loss of customer trust, which could be a particularly significant risk for the Company, whose main customers are financial institutions.

Triggered by the Great East Japan Earthquake, the Company reviewed its crisis management system and has created a business continuity plan and conducted training in preparation for the occurrence of a large-scale disaster. However, if an event occurs that exceeds the control of a single company, it may become difficult to maintain the service levels agreed upon with customers, and business performance may be affected.