DVx Inc.

There is an ongoing trend of reductions in the insurance reimbursement prices for specified medical materials aimed at curbing healthcare costs, and increasing price-reduction requests from medical institutions represent a factor that could depress profit margins. This is compounded by moves by medical institutions to secure profit margins in light of system changes and work-style reforms, directly affecting the Group's selling prices and business performance. As countermeasures, the Group is closely monitoring reimbursement price revision information, expanding product lines less affected by such changes, and focusing on the development and sale of proprietary products with relatively high profit margins.

The Company holds licenses and registrations under the Act on Pharmaceuticals and Medical Devices, including for the sale/leasing of controlled medical devices, first-class marketing authorization holder status for medical devices, medical device manufacturing, and medical device repair. If any license were revoked due to a violation of laws or regulations, this could lead to product recalls, discontinuation of sales, or an inability to continue business operations. While no grounds for license revocation currently exist, a business suspension order from regulatory authorities would have a severe impact on business activities. As countermeasures, the Group is strengthening coordination between the supervisory department and business offices, maintaining appropriate quality record management, and conducting regular education and training.

In addition to intensifying competition within the medical device industry, if competition were to intensify beyond expectations due to employee turnover or independence, this could lead to changes in trading relationships (distribution channel switching) and affect business performance. There is also a risk of declining profitability due to the emergence of competing products against the Company's proprietary planned products, as well as a risk that usage frequency of existing products could decline due to advances in innovative treatment technologies. As countermeasures, the Group is differentiating through its proprietary planned products tailored to customer needs, strengthening purchasing price negotiation power through expanded market share, and gathering information on cutting-edge technologies both domestically and internationally.

Amid rising requests for price increases from suppliers due to soaring raw material prices, profit margins could decline if it is difficult to pass these costs on to customers. In addition, if contracts with key suppliers become unable to be renewed or are terminated due to mergers, acquisitions, or other factors, or if supply of proprietary planned or developed products is delayed or halted due to supply chain disruptions or the bankruptcy of manufacturing subcontractors, business operations could be disrupted. As countermeasures, the Group is securing multiple suppliers, conducting regular credit checks on business partners, and performing appropriate reviews when confirming manufacturing plans in advance.

If system outages caused by malware infection, leakage of personal or confidential information due to cyberattacks or human error, or removal of information associated with employee resignation or job changes were to occur, this could affect business performance through operational delays or suspensions, damage to social credibility, reduced competitiveness, and response costs. While information management based on laws and internal regulations is implemented under the Basic Policy on Information Security and the Basic Policy on Personal Information Protection, such threats continue to exist. As countermeasures, the Group has implemented anti-virus software and firewalls, formulated a system BCP, obtained information leakage insurance, and established policies for responding to cyberattacks.

If a medical accident occurs due to product defects, quality defects in procured components, or inspection errors, this could affect business performance through decreased trust in the Group, recall costs to retrieve products from the market and distribution inventory, and litigation involving damages claims. The Company has established quality control and safety management systems, including appointing the three key officers required for marketing authorization holders of medical devices, but recognizes that similar risk countermeasures are also necessary as it expands sales channels overseas. As countermeasures, the Group conducts regular reviews of its QMS, maintains product liability insurance, and provides education and training including to local agents in export destination countries.

If recruitment competitiveness declines or employee attrition surges due to increased turnover, this could lead to operational delays or lost business opportunities due to staff shortages. Sustainable growth requires an organization comprised of personnel resilient to change, but competition for recruitment within the medical device industry is intensifying. As countermeasures, the Group is promoting improvement and maintenance of employee satisfaction, planning and implementing competitive compensation and benefits systems, and building mechanisms and opportunities that contribute to employees' sense of fulfillment.

Given the Group's ongoing transactions with many public hospitals, including national and public hospitals, if a bribery incident were to occur, this could result in criminal penalties, exposure or fines imposed by the Fair Trade Council of the Medical Device Industry, termination of transactions by suppliers, and disqualification from bidding, leading to loss of credibility and business partners. Similar sanction risks also exist with regard to violations of the Antitrust Act. As countermeasures, the Group is strengthening monitoring and management of monetary transactions, conducting regular education and training for employees, and gathering information on violation cases.

If inaccurate administrative work or fraud occurs due to deficiencies in the internal control system, this could result in damages and loss of credibility due to false statements in disclosure documents or administrative measures. There is also a risk of erroneous financial reporting if errors occur in the recording of purchases, sales, or assets due to undeveloped rules or improper rule operation with respect to new transaction formats. As countermeasures, the Group is developing manuals, establishing and updating mutual check systems for administrative procedures, providing education and training for employees, and reducing administrative workload through systemization.

If a large-scale natural disaster such as an earthquake or flood/storm damage occurs, this could affect business performance through disruptions to logistics or system failures, as well as cause damage to employees, sales offices, and owned assets. In addition, if medical institutions postpone non-urgent treatments due to the spread of a novel infectious disease, this could reduce the number of cases for which the Group supplies medical devices, affecting business performance. As countermeasures, the Group maintains insurance coverage, develops and disseminates BCPs and disaster manuals, implements telework and staggered commuting, and carries out infection prevention measures.