GLTECHNO HOLDINGS, INC.

Trends in the economic environment in the major markets for the Group's products may significantly affect its business performance. While the Group seeks to hedge risk through business diversification, a decline in demand due to rapid technological change or intensified price competition could adversely affect performance. Although business diversification is being promoted as a countermeasure, complete avoidance is difficult given the nature of the business, which requires cutting-edge technology.

In the semiconductor business, sales dependence on Applied Materials, Inc. of the United States is high, and significant changes in that company's business condition or demand trends could directly affect the Group's business performance. While the Group is focusing on developing proprietary products and expanding sales channels to reduce this dependence, concentration risk remains at present. Excessive reliance on a specific customer could undermine the stability of earnings.

The main supplier of quartz ingots, a key raw material for the semiconductor business, is concentrated in Momentive Performance Materials Quartz, Inc. of the United States, and supply tightness, delays, or significant price increases could affect business performance. The Group is working to diversify its suppliers by strengthening relationships with existing material manufacturers and identifying new ones, but concentration risk currently exists.

Technological progress is rapid in each of the Group's businesses, requiring constant response to technological innovation. Failure to respond appropriately to changes in the industry and market could lead to a decline in product competitiveness and affect business performance. While the Group continues R&D activities with speed and flexibility closely aligned with customers, there is a risk of falling behind depending on the pace of technological change.

Although the Group strives to strengthen its quality control system, unexpected defects, if they occur, could undermine trust in the Group and affect business performance. Quality issues can also affect ongoing transactions with customers, and since particularly high quality standards are required for semiconductor-related products, the scope of impact from this risk is broad. Although a robust quality control system has been established, complete elimination of future quality issues cannot be guaranteed.

The Group's major markets are Japan, Asia, North America, and Europe, and political and economic trends in each region may cause fluctuations in the supply-demand balance of the products it handles. Changes in the supply-demand balance affect business performance through selling and purchasing prices, and the impact may be amplified by rising geopolitical risk. Given the global nature of its operations, there is a risk that political instability in a specific region could spread to affect multiple businesses.

Rapid changes in the environment may cause raw material prices to surge or temporarily make procurement difficult. In particular, the ICs and custom ICs used in reader/writers for the automatic identification business are subject to significant fluctuations in supply availability depending on demand trends in the domestic semiconductor industry, and if it becomes difficult to secure inventory, business performance may be affected. The Group addresses this by maintaining ample inventory, but responding may become difficult in the event of a sudden change in semiconductor supply and demand.

The Group holds a large amount of confidential information, including customer information and personal data. If cyberattacks beyond expectations or unforeseen unauthorized use result in leakage of important information or suspension of business activities, this could affect business performance and financial condition. Although security measures, employee training, and IT investment are continuously implemented, complete defense is difficult given the increasing sophistication of cyber threats.

If problems arise in social infrastructure due to natural disasters such as earthquakes, accidents such as fires or power outages, or the spread of infectious diseases, the Group's business performance may be affected. Although regular equipment inspections, disaster preparedness drills, and infectious disease countermeasures are carried out in coordination with each site, there is a risk that business continuity could be disrupted in the event of a large-scale disaster.

The Group is subject to various laws, administrative licenses/approvals, and regulations both in Japan and overseas. Inadequate understanding of or improper response to unexpected changes could be deemed a compliance violation, potentially resulting in administrative penalties such as fines, surcharges, or business suspension, as well as a loss of credibility. For the Group, which operates globally, responding to changes in regulations in each country is an ongoing challenge, and the impact on business performance and financial condition in the event of a violation could be extensive.