TECNISCO, LTD.

The three sites in Hiroshima (development base), Suzhou, China (mass production base), and Singapore (development and production base for high-performance heat sink materials) each have distinct functions and cannot be immediately substituted for one another in the event of a disaster. If a large-scale disaster occurs and recovery is prolonged, the resulting disruption to production activities could have a material impact on business results and financial condition. The company is working to reduce this risk through the establishment of disaster-prevention equipment and drills, as well as outsourcing processing to external suppliers.

If events occur that violate domestic or overseas laws and regulations, there is a risk of administrative sanctions, litigation, and loss of social trust. If the company fails to keep pace with regulatory changes and unexpectedly falls out of compliance, the resulting reputational damage and response costs could significantly affect business performance. The company addresses this through the establishment of a Risk Management and Compliance Committee, formulation of a compliance manual, and employee training.

The company manufactures and sells products for domestic and overseas electronic component manufacturers, and overseas sales accounted for 50.7% of consolidated net sales in FY2025 (ended June 2025), making the company directly exposed to economic downturns in customer regions and to customers' capital expenditure freezes or production cuts. Unexpected demand fluctuations arising from natural disasters, war, terrorism, financial market turmoil, and similar events could affect business performance. The company has established a flexible response framework through regular market reviews at the Board of Directors and company-wide business improvement activities (PIM activities).

The company operates a mass production base in Suzhou, China, and continues to face events affecting the economic environment there, including US-China trade friction, geopolitical tensions, and major shifts in infectious disease policy. Changes in local laws, regulations, or the tax system, or a deterioration in economic conditions, could lead to additional tax liabilities, increased costs, and declining sales. The company works to mitigate this risk by building information-gathering and response frameworks in cooperation with its local subsidiary and outside experts.

Because the company's business structure includes overseas production and sales, fluctuations in the yen conversion rate used in preparing the consolidated financial statements directly affect business performance. In particular, an unexpectedly sharp appreciation of the yen could significantly reduce yen-converted sales and profits. The company works to reduce this risk through continuous monitoring of exchange rate movements and the use of hedging instruments such as forward exchange contracts.

The company uses metals, glass, non-metals, precious metals, and other materials as raw materials, and there is a risk that material prices could fluctuate significantly due to economic and exchange rate movements, political instability, or speculative trading activity. If procurement itself becomes difficult, disruptions to production activities and delays in passing on cost increases could affect business performance. The company has built a stable procurement framework through multi-vendor purchasing of key raw materials, strategic inventory holding, and sharing of demand information with suppliers.

In customer industries such as electronics, automotive, aerospace, medical, and industrial equipment, technological innovation and changes in the business environment are progressing rapidly, and the technical standards demanded by customers are becoming increasingly sophisticated. A delayed response to new technologies or customer needs could result in lost orders and reduced competitiveness, adversely affecting business performance. The company strives to capture customer needs through the development of high-performance heat sinks using Silver Diamond, industry-academia-government collaboration, and close communication with customers.

The company faces a wide range of competitors, from large international corporations to small firms, and intensifying competition creates a risk of declining new orders and falling prices for products and services. In particular, improvements in the technical and sales capabilities of emerging overseas companies could erode the company's competitive advantage. The company seeks to differentiate itself by leveraging the superiority of its Cross Edge® Technology (five processing techniques: cutting, grinding, polishing, metallizing, and bonding) to offer high-precision, high-quality products such as heat sinks for laser applications.

The company holds customers' personal and confidential information as well as its own proprietary business and technical secrets, and there is a risk that unauthorized access or information leakage resulting from a cyberattack could lead to significant consequences such as damages claims, loss of social trust, erosion of competitive advantage, and production stoppages. The company addresses this through the establishment of information management regulations, regular internal training, and the construction of a management framework and safety measures to prevent unauthorized access.

Interest-bearing debt at the end of the fiscal year under review stood at ¥4,231,630 million (note: the original text is denominated in thousands of yen), reaching 64.4% of total assets, and the company has already breached financial covenants under certain loan agreements. If interest rates rise or the business environment deteriorates further, there is a risk that fundraising could be restricted or immediate repayment of borrowings could be demanded. The company is addressing this through the use of public preferential support schemes and active use of overdraft facilities, and has concluded that no material uncertainty exists regarding its ability to continue as a going concern.