Ai Holdings Corporation

The Group positions M&A as a key management priority and is pursuing business expansion through it. If an acquired company fails to generate the expected profits or cash flows, or if contingent or unrecognized liabilities not detected during due diligence materialize, this could adversely affect business results and financial condition, including through the application of impairment accounting. While the Group strives to avoid such risks through thorough due diligence both domestically and overseas, complete elimination of these risks is difficult.

Demand for the Group's products may fall significantly short of expectations due to changes in market trends and competitor actions, including the emergence of innovative technologies. Sudden shifts in demand could adversely affect business results and financial condition through the occurrence of excess inventory and declining sales. The Group monitors market trends and responds through product development, production, and procurement aligned with demand, as well as maintaining appropriate inventory levels; however, there are limits to responding to abrupt changes.

The Group actively engages in overseas sales activities and imports certain products from overseas manufacturers, and thus may be affected by the impact of US-China tensions, changes in the political and economic conditions of countries where it sells or procures products, and foreign exchange fluctuations, all of which could affect business results and financial condition. As countermeasures, the Group mitigates country risk by changing production sites and suppliers as needed, and hedges foreign exchange fluctuation risk through currency matching (marrying) and forward exchange contracts. However, adverse effects from abrupt political and economic changes or exchange rate fluctuations cannot be completely avoided.

In its main businesses, the Group outsources product manufacturing to external manufacturers and also purchases products, resulting in a business structure in which performance is affected by the conditions of suppliers. If significant disruptions to product procurement occur due to soaring material costs, difficulty securing semiconductor components, delivery delays, quality issues, or natural disasters, this could adversely affect business results and financial condition. The Group strives to ensure stable procurement by maintaining close relationships with external manufacturers and purchasing partners, but risks stemming from external factors remain.

Since the Group operates business locations both domestically and overseas and has a global customer base, a large-scale natural disaster could damage facilities at the Group's own or customers' business locations, and disrupt supply chains through power outages or deteriorated road conditions, thereby impeding business activities. This could adversely affect operating results and financial condition. Disclosure of specific countermeasures in the securities report is limited, and the scope of this risk extends globally.

As the Group operates its business both domestically and overseas, it is subject to the legal regulations of various countries, and new legal regulations that cannot currently be anticipated may be established in the future. Failure to comply with these legal regulations could restrict business activities and adversely affect business results and financial condition. Given its global business operations, continuous response to changes in the regulatory environment is required.

There is a risk of leakage of confidential corporate information or personal information due to unauthorized external access or computer virus intrusion, and a risk that information systems could become inoperative due to damage to information system facilities from natural disasters or accidents, or communication line failures. This could reduce the efficiency of operations dependent on the system, and depending on the scale of the damage, could adversely affect operating results and financial condition. The Group is working to establish information security management regulations and thoroughly implement crisis management measures, but the risk cannot be completely eliminated.

The Group's business activities depend on its management, department heads, and other personnel, and securing and developing excellent human resources is a prerequisite for business expansion. If the Group is unable to secure or develop human resources as planned, this could adversely affect business expansion and operating results. Although the Group strives to secure and develop excellent human resources, there is a risk that achieving these plans may become difficult due to intensifying competition in the labor market and other factors.

If officers or employees commit intentional or negligent violations of laws and regulations, this could adversely affect operating results and financial condition. The Group works to raise legal compliance awareness through various means, including establishing compliance regulations, distributing compliance manuals to all officers and employees, and operating an internal reporting system. However, as the organization grows in scale, ongoing management is required to ensure thorough compliance across the entire Group.

In the course of conducting its business, the Group may become subject to various legal proceedings, including litigation and actions by regulatory authorities. Currently, no litigation that would materially affect business results has been filed; however, if litigation with a significant impact on business results or major social implications arises and a judgment unfavorable to the Group is rendered, this could adversely affect operating results and financial condition. Given the Group's business operations both domestically and overseas, the potential for legal risks to arise is wide-ranging.