Hirose Tusyo Inc.

Trading profit and loss, the Group's primary source of revenue, is heavily dependent on customer trading volume, which in turn is correlated with foreign exchange volatility. If foreign exchange volatility declines, trading volume may decrease. Conversely, if sharp fluctuations cause excessive losses for customers, trading volume may also decrease due to reduced investment appetite. In either case, this could have a material impact on the Group's financial position and operating results.

If sharp foreign exchange fluctuations occur due to natural disasters, war, terrorism, epidemics, or similar events, or if liquidity in the foreign exchange market declines, it may become impossible to conduct cover transactions with multiple counterparties, making it impossible to hedge the foreign exchange risk of positions arising from customer transactions. The Group diversifies risk through cover transactions with multiple counterparties, but it may be difficult to respond to a depletion of liquidity across the entire market.

The Foreign Exchange Margin Trading Business is subject to regulations such as the leverage regulation under Cabinet Office Ordinance (the obligation to deposit margin of at least 4% of the notional principal) and the obligation to conduct stress tests. If leverage regulations are further tightened or standards are made stricter, this could have a material impact on the Group's business model and earnings structure. The Group addresses this by daily implementing and considering measures such as reducing risk exposure and expanding equity capital.

In the FX industry, in addition to securities firms and internet-based banks, full-scale entry by major companies from other industries has intensified competition for customer acquisition. If differentiation strategies (such as food-related campaigns) fail to succeed, or if intensifying competition leads to further narrowing of spreads or increased costs for acquiring new customers, this could have a material impact on the financial position and operating results.

Although the Company employs a loss-cut system, if a sudden change in financial markets or exchange rates causes losses exceeding a customer's deposited margin, the Company must bill the customer for the shortfall. If the customer fails to pay the shortfall, it may be impossible to collect all or part of it, which could have a material impact on the Group's financial position and operating results.

Since all transactions are conducted online via the internet, if a system failure occurs due to malfunction, human error, cyberterrorism, natural disaster, or other causes, this could result in claims for damages or a decline in the number of customers due to damage to the company's image. The Group implements various measures with stable operation as an important management priority, but it may be difficult to respond to unforeseen failures.

Margin deposited with counterparties is funded through the Company's own funds, borrowings from financial institutions, overdrafts, bonds, and facility agreements, among others. If fundraising becomes difficult due to a change in banks' business policies or similar factors, or if a loss of the benefit of time occurs due to a breach of financial covenants, it may become difficult to deposit the required margin. In such a case, this could have a material impact on the Group's financial position and operating results.

The Company and its subsidiary JFX Co., Ltd. are registered as Type I Financial Instruments Business operators, but they may be subject to administrative guidance, business suspension, registration revocation, or other administrative dispositions due to violations of laws and regulations. In addition, if the capital adequacy ratio falls below 120%, the company is obligated to submit an improvement plan, and if it falls below 100%, it becomes subject to a business suspension order. As of March 31, 2026, the Company's ratio was 851.8% and JFX Co., Ltd.'s ratio was 1,395.7%, both significantly exceeding the regulatory levels.

If personal information is leaked or disclosed due to unauthorized external access or other causes, the Company's credibility could be significantly damaged through administrative sanctions from regulatory authorities or claims for damages from customers. The Company holds the Privacy Mark (obtained in December 2012) and has established internal regulations and conducted training, and has also strengthened its internal systems and processes in response to the EU General Data Protection Regulation (GDPR). However, if a fine is imposed for a GDPR violation, this could also have a material impact on the financial position and operating results.

The UK subsidiary HIROSE FINANCIAL UK LTD. and the Malaysian subsidiary Hirose Financial MY Limited conduct financial business overseas, but continuing operations may become difficult due to fines or revocation of licenses resulting from violations of local laws and regulations, changes in the political, economic, or social environment, or taxation based on tax system changes or transfer pricing taxation. In the worst case, the Group may be forced to withdraw from overseas operations, which could have a material impact on the Group's financial position and operating results.