MIROKU JYOHO SERVICE CO.,LTD.

Consolidation of accounting firms driven by the rise of large tax accountant corporations and large firms, as well as business succession issues stemming from the aging of firm principals, may proceed further, potentially shrinking the Group's primary customer market. Since the Group's core business is providing financial and accounting systems to accounting firms nationwide, a shrinking market could directly affect operating results and financial condition. As a countermeasure, the Group supports accounting firms' office management by helping expand the value they provide to their client companies and by supporting business succession.

In the business software industry, the competitive environment may intensify further, beyond what is currently anticipated, due to advances in IT, the sophistication of AI technology, and business model transformation. Intensified competition could affect the price competitiveness of products and services and market share, potentially adversely affecting operating results and financial condition. As a countermeasure, the Group continues to research and study business model transformation, including DX, and works to strengthen its sustainable market competitiveness.

If system defects occur in the products and services provided, if responses to rapid technological innovation are delayed, if responses to various legal and regulatory changes are delayed or inadequate, or if infringement of third-party intellectual property rights occurs, this could lead to claims for damages from customers or third parties, or damage the Group's credibility as an IT company. As a countermeasure, the Group has introduced a quality management system based on ISO 9001, and conducts ongoing information gathering and research on the latest technology trends, legal and regulatory changes, and intellectual property rights through dedicated internal organizations and external institutions.

The Group capitalizes a portion of the costs of ongoing software development undertaken to strengthen market competitiveness as fixed assets. However, if changes in the market environment or rapid technological innovation necessitate changes to development policy or requirement definitions, the Group may no longer be able to expect to earn revenue as originally planned, potentially resulting in additional depreciation and other charges. This could affect operating results and financial condition. As a countermeasure, the Group develops products in line with customer needs based on market research and analysis, and controls development costs through meticulous cost management.

In the software and information services industry, labor mobility is increasing, particularly among younger workers. If the Group is unable to secure excellent personnel as planned, this could hinder the maintenance and expansion of its management foundation, potentially affecting operating results and financial condition. As a countermeasure, the Group conducts new graduate and career recruitment from a medium-term perspective, while enhancing in-house training programs, actively encouraging external training, and offering incentive payments to employees who obtain qualifications. The Group also works on continuous improvement of the working environment and work-style reforms to raise employee satisfaction.

Since the Group has opportunities to be entrusted with customers' information assets in the course of building customers' information systems, if an information leak occurs due to computer virus infection, unauthorized external access such as cyberattacks, or natural disasters, this could lead to claims for damages from customers or damage the Group's credibility as an IT company, thereby affecting operating results and financial condition. As a countermeasure, the Group has obtained Information Security Management System (ISMS) certification, provides regular employee training, thoroughly strengthens information management, and implements security measures for information and network equipment.

If a major business site suffers catastrophic damage due to a natural disaster such as an earthquake or an act of terrorism, response costs will be incurred and business activities could be significantly disrupted. In addition, if a pandemic such as COVID-19 occurs, causing restrictions on the behavior of employees and customers or changes to customers' IT investment plans, this could seriously affect business activities such as the provision of products and services. As a countermeasure, the Group formulates and continuously reviews disaster response manuals, conducts simulation drills for disaster occurrences, and develops and supports telework environments.

The Group actively pursues M&A as a pillar of its growth strategy. Goodwill arising from corporate acquisitions is amortized over the period during which excess earning power is estimated to be realized; however, if the future earning power of an acquired business declines due to changes in the business environment or other factors, the Group may be required to recognize an impairment loss, which could affect operating results and financial condition. As a countermeasure, when conducting M&A, the Group performs sufficient due diligence regarding the target company's financial condition and contractual relationships to reduce risk.