SAXA, Inc.

The Company has a high proportion of domestic operating revenue, and if demand contracts due to an economic downturn in the information and communication network-related market or the amusement market, this may adversely affect business performance and financial condition. In addition, the Company procures and outsources manufacturing from China and Southeast Asia for cost reduction purposes, and deterioration in the economic conditions or security situation in these regions would also affect performance. As a countermeasure, the Group is diversifying its procurement and manufacturing systems, but this cannot completely eliminate the risk.

Foreign currency-denominated transactions are in a state of import surplus, and if the yen depreciates further, this would push up procurement prices and adversely affect business performance and financial condition. Although some countermeasures such as forward exchange contracts have been implemented, complete hedging is difficult. The Group is also exposed to the risk of sudden interest rate fluctuations, and while it has taken various risk-avoidance measures, adverse effects on performance cannot be eliminated.

The information and communication network-related market is subject to rapid technological innovation and intense competition, and price competition may intensify due to new entrants and market share competition among competitors. If expected demand is not achieved or product prices decline significantly, valuation losses on inventory may occur, adversely affecting business performance and financial condition. In the amusement market as well, significant changes in the regulatory and market environment affect business efficiency.

If the Group is unable to provide new products in a timely manner in response to rapid technological innovation in the information and communication network-related market, this may adversely affect business performance and financial condition. If the new product development process becomes prolonged, there is a risk that products may become obsolete and lose their marketability even before market launch. The Group strives to accurately grasp market and technology changes and respond to customer needs, but the risk of development delays cannot be completely eliminated.

In the system integration business, the Group bears responsibility for completing systems under contract-based arrangements, and if deviations from initial estimates or project management issues occur, this may result in costs exceeding expectations or payment of damages due to delivery delays. This poses a risk of adversely affecting business performance and financial condition. Although the Group strives to strengthen its project management system, it is difficult to completely eliminate this risk in complex development projects.

The Group has a high degree of dependence on certain customers as a proportion of consolidated operating revenue, and if transaction amounts decrease due to significant business or technical problems at such customers, or changes in their procurement policies, this may adversely affect business performance and financial condition. The management conditions and policy changes of customers are factors beyond the Group's control, and the high degree of dependence amplifies this risk.

The Group holds confidential information and personal information in connection with its business operations, and while it has implemented information leakage countermeasures and virus protection systems, the possibility of an information security incident occurring due to cyberattacks or other causes is not zero. If an information leak occurs, it would impact social credibility, incur substantial costs, and reduce brand value, adversely affecting business performance and financial condition. With the advancement of digitalization, cyberattack methods are becoming more sophisticated, requiring continuous strengthening of countermeasures.

Although the Group pays close attention to quality assurance through ISO9001 certification, the possibility of product defects arising from changes over time or unexpected quality abnormalities cannot be completely eliminated. If a defect occurs and claims for damages exceeding product liability insurance coverage or loss of credibility arise, this would adversely affect business performance and financial condition.

Securing and retaining excellent human resources is essential for further growth, but if the Group is unable to secure necessary personnel due to intensifying recruitment competition or other factors, or if a large number of employees leave, achieving business objectives may become difficult. Against the backdrop of a declining working population due to the falling birthrate and intensifying competition for talent, this risk tends to increase over the medium to long term.

The Group applies a cash balance-type defined benefit corporate pension plan and has taken measures to minimize risks from market interest rate and stock market fluctuations, but a decline in the discount rate or deterioration in investment returns could lead to an increase in retirement benefit obligations, adversely affecting business performance and financial condition. In addition, a downturn in the domestic stock market would directly lead to valuation losses on held shares and investment losses in corporate pension assets.