NIPPON PRIMEX INC.

While the majority of net sales consist of sales of products procured from major printer manufacturers, the primary supplier manufacturers and their sales subsidiaries maintain their own dedicated sales divisions for industrial small printers, placing them in a constant competitive relationship with the Group. Should a major supplier change its sales policy in the future, this could have a material impact on the Group's business performance. As countermeasures, the Group secures a certain customer base through regular visits to client users to understand their needs and through customization support provided by its subsidiary, Japan Printer Engineering Co., Ltd.

Since demand for industrial small printers is affected by corporate capital expenditure trends, a prolonged economic downturn, the relocation of manufacturers' production overseas, and consolidation among manufacturers in the POS and measuring instrument fields could affect business performance. Additional risk factors include a decline in cost competitiveness against competing products and rapid innovation in IT technology. The Group has adopted a policy of mitigating the impact of reduced orders from individual companies by expanding sales across a wide range of industries.

Since export sales are settled at spot rates, fluctuations in foreign exchange rates directly affect sales and earnings. Although a portion of foreign currency (US dollar) holdings is allocated to settlement of import payments, the Group does not employ foreign exchange hedging measures, creating a risk of foreign exchange gains or losses arising from foreign currency deposits and foreign-currency-denominated receivables. Because hedging instruments are not utilized, the structure is such that the impact on business performance tends to become apparent during sudden exchange rate fluctuations.

As the subsidiary Japan Printer Engineering Co., Ltd. actively engages in new product development, there is a possibility that third-party intellectual property rights not recognized by the Group already exist. If an infringement is found to have occurred, the Group may face claims for damages, be required to cease supplying the relevant products, or be obligated to pay royalties, any of which could adversely affect business performance. While the Group endeavors to investigate, verify, manage, and protect intellectual property rights, complete avoidance cannot be guaranteed.

The subsidiary Japan Printer Engineering Co., Ltd. manufactures and develops products, making it subject to the Product Liability Act (PL Law). While no litigation related to the PL Law has arisen to date, should litigation occur in the future, a decline in product reliability and claims for damages could affect business performance. Additionally, claims arising from delays in the development of OEM products and proprietary products are also recognized as a business performance risk.

Natural disasters such as large-scale earthquakes, typhoons, and volcanic eruptions, as well as fires, war, and terrorism, could cause damage to offices, facilities, employees, and business partners, directly or indirectly affecting assets and business operations. While countermeasures have been implemented through the preparation of disaster response manuals and the formulation of a business continuity plan (BCP), damage cannot be entirely avoided. Should such damage occur, there is a risk of adverse effects on operating results and financial condition.

During the COVID-19 pandemic, the Group actually experienced inventory shortages due to the suspension of operations at overseas manufacturing plants, delayed arrival of parts and products, and disruptions to sales activities caused by business partners' shift to telework and temporary closures. Depending on the future occurrence and spread of new infectious diseases, there remains a possibility of adverse short-term effects on business performance. Given the structure's high dependence on overseas supply chains, vulnerability to infectious disease risk persists.