SYNCLAYER INC.

In the broadcasting and telecommunications field, competition is intensifying due to cross-entry between major telecommunications carriers and cable TV operators, as well as the expansion of internet video streaming providers. If a slowdown in private and public investment due to global economic uncertainty, sharp fluctuations in supply and demand for products, or significant price declines from intensified competition occur, this could affect the Group's business results. The Group is responding through efforts to improve its technological and solution-providing capabilities and to expand new services.

Against a backdrop of recent global uncertainty, the supply environment for electronic components including semiconductors has been fluctuating, potentially leading to deteriorating availability and price increases. The semiconductor components used in the Company's products are also widely used in automobiles, smartphones, and game consoles, and if demand in these industries expands rapidly, availability could deteriorate, potentially increasing product costs. The Group strives for stable procurement through diversification of suppliers and enhanced inventory management, but if supply shortages or significant price increases occur, this could affect production plans and manufacturing costs.

FTTH-related equipment, telecommunications-related equipment, terminal devices, and similar products require responsiveness to rapid technological innovation, but new product development is complex and uncertain, and there is no guarantee of appropriately timed investment allocation, accurate grasp of market needs, or protection as intellectual property. Rapid technological advancement and market changes may affect R&D themes, and prolonged development periods could lead to lost sales opportunities. If the Group fails to sufficiently anticipate industry and market changes and cannot develop attractive new products and technologies, this could reduce future growth and profitability and affect business results and financial condition.

The Group conducts equipment production at its local subsidiary in China (Aichi Electronics (Zhongshan) Co., Ltd.), where risks exist such as unexpected changes in local laws, systems, and regulations, surges in material prices, rising labor costs, exchange rate fluctuations, and credit concerns regarding business partners. In addition to the instability of the electronic component supply environment stemming from recent global uncertainty, geopolitical risks and various issues faced by different countries could affect overseas business activities. If these factors lead to increased procurement costs or difficulty securing materials, this could reduce price competitiveness and affect business results.

To ensure a stable supply of products, the Group must maintain a certain amount of parts and materials in inventory, and if these remain unsold for an extended period, a write-down based on internal regulations becomes necessary, potentially resulting in a substantial inventory valuation loss each quarter. If accelerating technological innovation causes products to become obsolete and misaligned with market needs, such valuation losses could affect business results. Furthermore, although quality control is conducted based on ISO 9001, elimination of defects in all products cannot be guaranteed, and product liability insurance and recall insurance may not sufficiently cover compensation or losses.

With the development of the domestic internet market, products from overseas telecommunications equipment makers in the US, China, South Korea, Taiwan, and elsewhere are widely used, but adoption of such overseas-made products may be shelved due to conflicts of economic interest between nations, changes in trade policy, or geopolitical risks. Additionally, if products from overseas telecommunications equipment makers fail to achieve a market advantage in terms of performance or price, this could lead to decreased orders and affect business results. Furthermore, if purchased goods have quality abnormalities or performance defects, cases where these cannot be corrected or resolved even with contracts in place could affect business results.

For transactions denominated in foreign currencies, risk mitigation measures such as foreign exchange forward contracts are employed, but if exchange rate fluctuations exceeding forecasts occur due to heightened global economic uncertainty or fluctuations in international financial markets, this could affect business results and financial condition. For the Group, which has production activities at its local subsidiary in China and purchases from overseas telecommunications equipment makers, exchange rate fluctuations are a risk directly linked to procurement costs and profitability.

The industry to which the Group belongs is undergoing rapid technological innovation with high labor mobility, requiring advanced technical and construction skills. If it becomes difficult to secure and develop excellent personnel amid the progress of DX and AI technology adoption, this could affect future growth and business results. Additionally, hiring excellent engineers with experience in the latest technologies and providing continuous in-house training push up recruitment costs and personnel expenses, and these cost increases could affect business results and financial condition.

In the event of large-scale natural disasters, accidents, or new infectious diseases, business activities and results could be affected by the shutdown of public infrastructure, facility damage, human casualties, or supply chain disruptions. Although the Group has strengthened security measures such as introducing SOC services against the recent increase in ransomware and other cyberattacks, if increasingly sophisticated cyberattacks compromise confidentiality, integrity, or availability and render systems inoperable, this could damage corporate credibility and result in damages that cannot be covered by cyber insurance.

The Group has adopted a company with an audit and supervisory committee structure and is working to improve management soundness and efficiency through the establishment of an internal control committee and contracts with audit firms. However, if the management oversight framework becomes inadequate, or if deficiencies or shortcomings in internal controls prevent an adequate internal monitoring system and proper conduct of operations, this could give rise to misconduct or corporate scandals. As a result, the interests of shareholders and other stakeholders could be harmed.