Tsuji Hongo IT Consulting Co., Ltd.

In the internet-related industry, legal regulations concerning information distribution and electronic commerce are being developed, and there is a risk that business operations could be constrained by legal violations or by changes in interpretation, amendment, or enactment of new laws. Responding to such changes may result in the incurrence of legal costs, changes to service content, new development expenses, and constraints on business activities, which could affect business performance. Although the Group has established internal systems and strives to ensure legal compliance, complete adaptation to changes in the regulatory environment cannot be guaranteed.

The back-office SaaS market and the inheritance-related market continue to grow, but a severe competitive environment exists with multiple competing companies. If market growth stalls due to the introduction of new regulations or unforeseen factors, or if competition intensifies due to new entrants with abundant capital resources, this could have a material impact on the Group's business development and business performance. The Group has gained market recognition through differentiation based on practical know-how and the utilization of technology, but maintaining competitive advantage remains an ongoing challenge.

Securing excellent personnel who share empathy for the Mission, Vision, and Value is essential for expanding the scale of the company. If the Group is unable to sufficiently secure excellent personnel due to intensifying competition for talent or changes in market needs, or if personnel attrition occurs, it could affect business operations and performance. The Group intends to continue its recruitment activities, but securing personnel remains highly challenging amid intensifying competition in the IT and DX talent market.

In the consolidated fiscal year under review, sales to Tsuji Hongo Tax Corporation, the Group's major client, exceeded 30% of total sales, indicating a high degree of dependence on a specific customer. If new customer acquisition does not progress due to the provision of value-added services by competitors or other factors, deterioration in the client's business performance, changes in its management policy, or changes in transaction terms could have a material impact on the Group's business performance. The Group strives to reduce this dependence through new customer development and service differentiation, and the timing of occurrence is explicitly stated as within five years.

The Group handles confidential and personal information of numerous companies and faces the risk of information leakage due to cyberattacks, unauthorized access, system failures, and other causes. In the fiscal year ended September 2025, the cloud server of consolidated subsidiary Colony Interactive Co., Ltd. was subject to unauthorized access by a third party. If an information leak were to occur, it could result in loss of trust and losses from damages, potentially affecting business performance. In response, the Group has established a "Security Improvement Committee" to conduct ongoing improvement and monitoring, and has also obtained the Privacy Mark certification.

The Group uses information networks and computer systems extensively in its business operations. If a system failure occurs due to a disaster, accident, hardware defect, computer virus, unauthorized access by a third party, or other cause, it could result in suspension of business operations, damage to social credibility, and an adverse effect on business results. Although measures such as system and security enhancements have been implemented, such risks cannot be completely eliminated.

The Group continuously receives referrals of business opportunities from companies within the parent company group. The proportion of sales attributable to newly referred projects from the parent company group was 7.5% of total sales in the fiscal year ended September 2024, and 7.8% in the second quarter of the fiscal year ending September 2025. If, for any reason, the cooperative relationship with the parent company group is not maintained or its policies change, this could affect the Group's business performance. The Group is working to reduce this dependence by expanding sources of referrals through relationship-building with financial institutions and various vendors.

The "Tsuji Hongo" brand is an essential foundation for the Group's business development. If the quality of consultants declines or the services provided no longer meet customer needs, this could lead to a decline in brand strength and affect business results. The brand has been built over many years by group companies such as Tsuji Hongo Tax Corporation, and its maintenance and development are extremely important for expanding the business foundation.

The market capitalization of the Company's tradable shares is close to the listing maintenance criteria for the Standard Market of the Tokyo Stock Exchange. If the market capitalization of tradable shares declines for any reason, it could fall below the listing maintenance criteria and lead to stagnation in market trading. In addition, if the 182,596 potential shares (equivalent to 10.8% of the total issued shares of 1,691,988 shares) subject to stock acquisition rights are exercised, there is a risk of dilution of the value of shares held by existing shareholders. The Company intends to improve liquidity through measures such as enhancing corporate value via growth in sales and profit, and requesting major shareholders to sell shares.

The Group actively pursues M&A as one of the pillars of its growth strategy, and goodwill arising from corporate acquisitions is amortized over the period during which excess earning power is estimated to be realized. If the future earning power of an acquired business declines due to changes in the business environment or other factors, an impairment loss may be recorded, which could affect business results and financial condition. When conducting M&A, the Group performs thorough due diligence on the target company's financial condition, contractual relationships, and other matters to reduce risk.