Next Generation Technology Group Inc.

Since funds for corporate acquisitions are primarily raised through financial institution borrowings, an increase in interest-bearing debt could lead to higher interest expenses in a rising interest rate environment, potentially materially affecting business results and financial condition. As countermeasures, the Group works to secure repayment capacity by increasing the equity capital ratio at the time of acquisition to restrain leverage, and by acquiring highly profitable companies at appropriate valuations (enterprise value/EBITDA multiples).

Goodwill arising from continuous M&A activity is recorded and amortized on the consolidated balance sheet, but if expected results are not achieved due to changes in the business environment or other factors, the recognition of impairment losses may be required, which could significantly affect business results and financial condition. The Group addresses this by conducting thorough due diligence and examining business, financial, and legal risks in advance, but risks arising from changes in the external environment cannot be eliminated.

Natural disasters such as earthquakes and floods, accidents such as fires and power outages, and the spread of infectious diseases could damage production, sales, and logistics facilities or halt operations, potentially affecting business results and financial condition. Since acquired companies are dispersed across the country, there is a risk-diversification effect against damage in any specific region, but each company also conducts regular disaster drills and equipment inspections to minimize damage.

The Group relies on continuous M&A as a key growth driver, but if the manufacturing M&A market stagnates due to economic downturn, natural disasters, deteriorating reputation of M&A, or other factors, continuous corporate acquisitions may become difficult, potentially affecting business results and financial condition. While long-term growth potential is judged to be sustained due to the structural continuation of succession needs stemming from aging business owners, the risk of a short-term market downturn remains.

Competitive, high-quality manufacturers also attract interest from PE funds and other operating companies as acquisition targets, and owners who prioritize a higher acquisition price may select a party other than the Group, potentially preventing the execution of intended acquisitions. The Group seeks to differentiate itself through a policy of ultra-long-term management support and respect for the independence of each acquired company, but if intensifying competition reduces acquisition opportunities, it could hinder the growth strategy.

Failure by acquired companies to comply with laws, regulations, and standards relevant to their business activities could damage social credibility and affect business results and financial condition. Risks arising from unexpected enactment or revision of laws, or from regulatory changes accompanying significant shifts in the social and economic environment, cannot be eliminated either. As countermeasures, the Group thoroughly ensures legal compliance through internal audits, the establishment of a Risk and Compliance Committee, and the development of an internal whistleblowing system.

If the development of internal management structures suited to the Group's overall business scale, and the recruitment and training of management personnel, fail to keep pace with the increasing number of acquired companies, appropriate business operations may become difficult, potentially affecting business results and financial condition. There is also a risk that timely execution of consolidated accounting could become difficult; as countermeasures, the Group is advancing the hiring of accounting personnel and reducing dependence on specific individuals through IT adoption and manualization.

Representative Director and President Eiichi Arai holds 65.54% of the total number of issued shares, and if his shareholding ratio were to decline in the future for some reason, this could affect the market price of the Company's shares and the exercise of voting rights, among other matters. While he has stated a policy of also giving consideration to the interests of minority shareholders, the risk of changes in his shareholding ratio remains structurally present.

Acquired companies procure various raw materials and parts from external suppliers, and if prices surge or supply becomes difficult due to exchange rate fluctuations or changes in supply and demand, this could affect business results and financial condition. In addition, if product quality defects occur, costs for producing replacement products or claims for damages from customers may arise; the Group works to prevent the shipment of defective products through thorough organization and timely, appropriate equipment renewal, along with inspections conducted at each company.

Although the Group conducts accounting, tax, and legal due diligence by external experts at the time of corporate acquisition, if issues that could not be identified in advance—such as the emergence of contingent liabilities or the discovery of unrecognized liabilities—arise after the acquisition, this could affect business results and financial condition. Also, if there are vulnerabilities in an acquired company's management structure that could not be identified in advance, delays in consolidated accounting work may occur; the Group mitigates damage from such latent risks materializing by including indemnification clauses in contracts with sellers.