Risk Factors

Among the items related to the situation of business, accounting, etc. listed in the securities report for the year ending September 2022 of Japan Business Systems, Inc. ("the Company"), the main risks that may significantly affect the decisions of investors of which the Company is aware include the following. The Company is sufficiently aware that these risks may occur and intends to avoid their occurrence or respond to these risks if they occur. However, investment decisions regarding the Company’s shares must be made carefully upon considering the items in this paragraph as well as other information provided in this document. The items related to the future in this document are the Company’s decisions as of the end of September 2022 and do not cover all risks that may occur in the future.

The cloud integration business, cloud services business, license & products business provided by the Company are growing as cloud adoption by customers advances and the market continues to grow, and the Company envisions that this trend will continue. In order to maintain our competitiveness in the market, the Company is advancing the development of human resources and processes to continue to maintain Microsoft Azure Expert MSP certification. However, because of reasons such as the economic climate and economic trends in Japan and overseas, there is a possibility that the scale of the market in which the Company provides services may shrink due to system investment downsizing by client companies, delay in product development, business downsizing, and in-house production of system development, etc. Consequently, in the case that system investment trends in Japan deteriorate or market conditions in the business fields for the Company’s customer base deteriorate, it may have an impact on the Company’s business performance or financial situation due to reduced orders from existing customers or a slowdown in cultivating new customers.

The Company belongs to the information service industry, where numerous competitors exist. As system development continues to globalize in the future, the competition for human resources and pricing is expected to intensify, with our competitors not being limited to domestic companies but also foreign ones. The Company is undertaking various measures to stay ahead in acquiring human resources and retaining the best talents. To attract new graduates and recruit excellent talents both from the metropolitan and regional areas, the Company is strengthening its hiring competitiveness by enhancing employees’ welfare benefits such as providing company housing in convenient metropolitan locations and offering an employees’ cafeteria, Lucy’s CAFE ＆ DINING, to promote in-house communication. Additionally, the Company offers a rich array of programs for training our employees, including a certification acquisition system in partnership with Microsoft and other manufacturers, enhanced e-learning programs to encourage off-site learning, and a JBS training center for in-depth on-site learning. For mid-career recruitment as well, we have introduced an employee referral system and many other options for hiring excellent human resources. In terms of price competition, the Company strives to reduce development costs and improve profitability through enhanced project management and quality control. In the case that the competition for acquiring human resources and price competition further intensifies, along with an increase in competitors, it may affect the Company’s business performance or financial situation due to loss of orders, decreased profitability, etc.

The Company seeks to adapt to significant technology innovations in our business field, the information services industry, through hiring, employee education and training, enhanced development environment, etc. However, if the Company cannot predict the direction of sudden technological innovation or respond to such innovation appropriately in a timely manner, it may negatively affect the Company’s business performance or financial situation.

JBS has expanded its business through many years of transactions and collaborations with Microsoft Japan, and the Company considers the maintenance and strengthening of the relationship with Microsoft Japan to be essential to the future sustainable growth of the Company. JBS currently continues to enjoy a stable business relationship with Microsoft Japan. Microsoft products or solutions included in part or all of the services provided by JBS accounted for 76% of the Company’s sales performance for the year ending in September 2022. The Company also gains new business opportunities introduced by Microsoft Japan and develops new businesses using Microsoft technologies. If, for any reason, due to a great change in the Company’s relationship with Microsoft Japan, such as significant changes in our contract conditions or transaction terms with Microsoft Japan, it may negatively affect the Company’s business performance or financial situation.

The Company has concluded a contract with Microsoft Japan related to the products and services it provides, and the Company provides said products and services to its customers. JBS maintains stable business relationships with specific business partners in this manner. However, if there were to be a great shift in the market appeal of specific products or services due to any reason, and if it were to become an obstacle in the provision of specific products or services from the Company, it may negatively affect the Company’s business performance or financial situation.

The Company aims to strengthen its relationships with customers and continue being their reliable business partner for customers using our services. However, if customers require cloud-based system building or post-system implementation maintenance and management services rather than on-premise services and the service levels cannot fully adapt to the changes in customer needs and such customers choose not to continue business or contractual relationships with the Company, it may negatively affect the Company’s business performance or financial situation.

The Company predicts the costs that will occur based on work processes, etc. and calculates estimates adding fair profit to manage the profitability of projects. However, if additional costs should occur due to unexpected events, etc. or delays in delivery occur due to the Company’s negligence, it may deteriorate the profitability of a project from the initial estimate, and consequently, degrade the Company’s reputation, etc., which may negatively affect the Company’s business performance or financial situation.

When working on a system development project for a turnkey contract, strict adherence to the delivery deadline and securing of high quality are demanded. If any unexpected problem or change in the development environment, etc. occurs, temporary long-hour labor may be required to meet the quality or delivery terms. The Company has implemented a labor management system to prevent long-hour labor and prioritize employees’ health. However, if long-hour labor is required due to unavoidable circumstances, it may lead to social or legal labor problems due to decreased productivity in system development or deteriorating employee motivation, which may negatively affect the Company’s business performance or financial situation.

With regard to system configuration, development work, etc., the Company outsources some work to subcontractors with the aim of securing human resources, streamlining development work, and swiftly responding to customer demands, etc. As of the end of the current fiscal year, the Company maintains good partnerships with subcontractors and intends to actively move forward with securing subcontractors and strengthening its cooperative relationships with them. However, when sufficient human resources cannot be secured from subcontractors, it may negatively impact the Company’s business performance or financial situation.

The Company builds and operates information systems for both cloud and on-premise environments for streamlining our business operations and facilitating internal information-sharing. In either environment, in the case of a serious problem with the information system arising from a system failure making services unusable, unexpected external unauthorized access, malware infection, or other security incident, it may lead to a decline in our business efficiency, and negatively impact the Company’s business performance or financial situation. Furthermore, any loss or leakage of customer data (including personal information) stored in a cloud environment, or design information of a customer’s system environment, etc., it may also negatively impact the Company’s business performance or financial situation.

In executing the business of the Company, the Company is bound by the regulations of the Act on Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers (Workers Dispatching Act), Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (Subcontract Act), Telecommunications Business Act, Secondhand Goods Business Act, and other laws (including but not limited to laws related to the protection of privacy and personal information, elimination of anti-social forces, and anti-bribery). The Company mandates the Human Resources Department as the managing department with regard to the Workers Dispatching Act, the Corporate Planning Department for the Telecommunications Business Act, and the Business Support Department for the Secondhand Goods Act, respectively, for legal compliance such as the acquisition of permits and approvals in accordance with laws. However, if a legal violation should occur, such as neglecting to comply with the law, it may restrict the execution of the Company’s business, or it may even cause a claim for damages from a customer, and possibly tarnish the Company’s social credibility. If such a situation were to occur, it may negatively impact the Company’s business performance or financial situation.

In executing our business, the Company is entrusted with development projects such as system integration and cloud integration. We execute these projects in compliance with applicable laws and regulations in accordance with the terms of the contract and endeavor to execute the projects without violating laws, regulations, or the contract. However, if the Company receives a claim for damages due to a defect in the entrusted system or failure of the project, it may negatively impact the Company’s business performance or financial situation.

The Company has so far established subsidiaries in the United States, China, Singapore, Mexico, and Hong Kong, and intends to move forward with overseas expansion. However, there are various potential risks in overseas expansion such as changes in local laws and regulations, social conditions, exchange rate fluctuations, or the possibility of the Company’s services not being accepted in the market. In the case that the Company cannot adapt to these risks, it may negatively impact the Company’s business performance or financial situation.

President & CEO Yukihiro Makita is a central figure in the establishment of the Company and plays a material role in all aspects of the Company’s business activities. The Company is dependent on the President & CEO to a considerable extent. The Company is promoting to strengthen its business management system and fostering of human resources in order to avoid excessive dependency on the President & CEO. However, if for any reason, it becomes difficult for the President & CEO to continue to execute the business of the company, it may negatively impact the Company’s business performance or financial situation.

The growth and profit of the Company relies largely on its human resources. Therefore, hiring and fostering the necessary human resources such as excellent technicians, system engineers, and managers are essential and the Company undertakes various measures such as promoting new graduate and mid-career recruitment and training systems. However, if such human resources cannot be hired or fostered, or there is a larger-than-expected exodus of human resources, it may negatively impact the Company’s business performance or financial situation.

The Company may handle personal information or confidential information of customers or business partners in relation to our business operations. The company has acquired ISO 27001 (ISMS) and JIS Q 15001 (Privacy Mark) certifications. We have also established an information security system headed by the Chief Information Security Officer (CISO) and comprised of representatives and supervisors from each department, while also setting up an Information Security Committee. The Committee takes various information security measures such as employee education, monitoring of various software, recording of evidence of access to information assets, and more. In this way, we manage our material information assets, including personal information, and make efforts to avoid the risk of information leakage. However, in the event of any leakage of information kept by the Company or by its subcontractor, we may receive a claim for damages from our customer, or the Company’s credibility may be tarnished, resulting in negatively impacting the Company’s business performance or financial situation.

The Company undertakes thorough awareness-raising activities to avoid infringing on the trademark, patent right, copyright, or other intellectual property owned by other companies when we operate business activities including system development. The Company exercises constant attention in its business development, and as of the end of this fiscal year, we have confirmed no instances of intellectual property infringement. However, in the future, we may have a possibility to infringe on intellectual property for which another company is the rights owner outside of the Company’s awareness. In such a case of intellectual property infringement of a third party, the Company may bear a substantial cost, receive a claim for damages, etc., which may negatively impact the Company’s business performance or financial situation. Additionally, the Company actively acquires the necessary intellectual property rights in developing the Company’s business and establishes intellectual property rights for the Company’s own creations. However, in the case that difficulties arise in acquiring or establishing rights, it may negatively impact the Company’s business performance or financial situation.

The Company is aware that risks related to compliance are expected to increase with the Company’s business expansion and amendments of laws and regulations. In response, the Company has established the Compliance Code of Conduct with which all officers and employees should follow and created a structure to promote compliance for ensuring that all officers and employees shall comply with laws, social norms, and in-house regulations as well as ethical activities as business professionals. Despite these efforts, in the event of a material compliance violation, we may receive a claim for damages, or our business partners, including an important partner, may reconsider transactions with us, as well as the possibility of tarnishing the Company’s social credibility. These risks may negatively impact the Company’s business performance or financial situation.

The Company has implemented a risk management system anticipating for the occurrence of natural disasters such as earthquakes or fires. However, if the Company’s business operations are hindered due to the occurrence of direct damage, suspension of power supply, communication failure, etc., it may negatively impact on the Company’s business performance or financial situation.